For a number of reasons, pensions have historically been unpopular for many farmers who have seen them as restrictive and often not as attractive as buying land or machinery. However the announcement by Chancellor George Osborne that he is abolishing the 55% tax levied on pension pots of savers when they die, after the age of 75, tidies up the last anomaly in his programme of pension reform. As a result pensions are back on the tax planning map for farmers.
Previously, lump sum death benefits were taxed at 55% for anyone aged 75 and were only tax free for people under 75 if they died before pension payments began. As from April 2015, if the deceased is over 75 beneficiaries will only pay their marginal income tax rate when they take money out of the pension. Access to pension pots of those who die before age 75 will be tax free whether or not pension payments have started.
Following the relaxation of the pension rules, which will allow the over-55s to have full access to their pension pots from April 2015 and the discretion to do whatever they wish with it, it will also undoubtedly be of great comfort to know that they will be able to pass on any unused pension savings to their beneficiaries, tax free.
The cynical may say that this is a pre-election vote-catcher as the continuing perilous state of the national debt gives the Chancellor little room for manoeuvre to make any other tax cuts. The logical, however, will say it is both a necessary and sensible measure to encourage long-term saving for later life.
Greater freedom, however, gives greater choice and this can be rather bewildering, so professional advice should be sought.